What Happens When a Trustee Makes Unethical Decisions

What Happens When a Trustee Makes Unethical Decisions

May 22, 2017 • Uncategorized

Trustees are given the responsibility to manage a trust according to the wishes of the deceased. This involves record keeping, safe-guarding and ensuring all beneficiaries receive their owed entitlements. Reasonable care and judgment must be used to manage the trust to prevent a breach of fiduciary duty. If a breach of duty occurs, beneficiaries can file a claim and the trustee may suffer dire consequences.

The Trustee’s Fiduciary Duties

A great deal of trust is placed in the trustee to act legally and responsibly according to the wishes of the benefactor. Under Florida law, statutes 736.0801 – 736.0816, trustees have specific duties to trust beneficiaries. If these fiduciary duties are not followed, serious action can be taken.

• The trustee must use good faith to administer the trust according to the terms and purposes outlined by the benefactor.
• “Reasonable care and skill” must be used to administer and protect the trust. This includes claim enforcement and property preservation.
• There is a duty of loyalty, meaning the trust must be administered in the interests of the beneficiaries.
• Specific skills or expertise of the trustee must be exercised if the trustee has been appointed according to the expected use of those skills or expertise.
• The trustee must administer the trust impartially and in the respective interests of the beneficiaries.
• The trustee is responsible for control and protection of the trust using reasonable steps.
• All elements of the trust must be considered during administration using reasonable care, including distribution requirements, terms and the intended purpose.
• Reasonable protection of the trust is the responsibility of the trustee.
• Beneficiaries must be kept reasonably informed about the trust and its distribution, including factors such as assets, expenses and gains or losses.
• The trustee must provide relevant information regarding the trust’s assets, liabilities and administration to the beneficiaries.

Signs of a Possible Breach of Fiduciary Duty

Beneficiaries have the right to act when a trustee breaches fiduciary duty. Some breaches may not be intentional, but there are signs to watch for to determine when intervention is necessary.

Conflicting Interests

If the trustee has interests in other holdings that could directly conflict with the intent of the benefactor, actions should be closely monitored. The trustee cannot use the trust’s assets for personal gain unless outlined specifically by the benefactor.

Unclear Record Keeping

A failure to maintain clear records of estate assets could be a sign that the trustee has something to hide. In many cases, a trustee may be a family member whose own finances are associated with the trust. It is imperative for the trustee to clearly indicate differences in accounts and inform beneficiaries regarding any changes. If this is not done, it could be considered a breach.

Failure to Stop Another Party From Breaching Trust

Part of the trustee’s outlined duties surround reasonable protection of the estate. Suspicious behavior by another party under the watchful eye of the trustee could indicate a scheme in the works. If an involved party other than the trustee breaches a fiduciary duty yet the trustee does not take action to stop the breach, it could have serious consequences for the trustee.

Filing a Claim Against a Trustee

The beneficiary of a trust has the right to file a claim against a trustee who has breached fiduciary duty and must do so within a reasonable time. There should be some form of documentation regarding the breach. A third party will typically get involved if the court rules that a breach took place, such as a financial institution. The third party can make sure the beneficiary receives the full entitlement and resolve any issues arising from the trustee’s breach of duty. Consequences for the trustee range from fines and compensation to complete removal from the position. If a trustee commits fraud and it is not discovered in a timely manner, it could still be possible to file a claim because of the trustee’s continuing duty.

If you are in the process of setting up a trust, choose an honest trustee with impeccable organization and communication skills. Whether or not they have intent to do so, trustees who breach their fiduciary duties can cause trouble for beneficiaries and may get into great trouble with the law.